Ericsson Wins Five-Year Management Deal From VimpelCom

Ericsson AB, the world’s largest maker of wireless networks, won a five-year contract to manage VimpelCom Ltd.’s system in the Siberia and Ural regions, expanding its services business in Russia.

About 400 VimpelCom workers will move to Stockholm-based Ericsson as part of the deal, VimpelCom said today in a statement. Ericsson will manage and service more than 10,000 base stations and 10,000 kilometers (6,200 miles) of fiber-optic lines for VimpelCom starting in April.

Ericsson is trying to sell more services such as network management and maintenance as wireless carriers in Europe curb infrastructure investment amid contracting economies and increasing competition. Last year, Ericsson’s services revenue expanded 16 percent as network-equipment sales fell 11 percent.

“The traditional driving force for deals like this is the operating expenditure savings, but beyond the savings common in these deals there’s also the increased network quality and the competence in the new technology,” Valter D’Avino, head of Ericsson’s managed services, said in a phone interview, adding a typical deal can save a carrier about 20 percent in operating costs. “This is huge growth in the market.”

VimpelCom is cutting costs to help reduce debt. The company is seeking to outsource network maintenance and “optimize” its headcount to cut costs, Russia head Anton Kudryashov said in a presentation last month.

Shares of Ericsson fell 0.7 percent to 77.65 kronor at 1:16 p.m. in Stockholm, recovering some of their earlier losses. VimpelCom added 0.4 percent to $12.40 in New York trading yesterday.

This week, Ericsson won a $1 billion services contract from India’s Reliance Communications Ltd.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Adam Ewing in Stockholm at aewing5@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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